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Kent Reliance chief executive Andy Golding says building society's business model was flawed before rescue by private equity group JC Flowers

10 July 2014
by Chris Price

Moments before markets opened at the London Stock Exchange on Thursday, June 5, Andy Golding felt like he was on the set of a sci-fi film.

As he slotted a glass plaque bearing his company’s name into a computer, it barked “market opening initiated” back at the Kent Reliance chief executive.

The action launched its parent company OneSavings Bank onto the markets, bringing to an end eight months of lobbying investors, dealing with lawyers and sweating over the bank’s launch share price.

OneSavings Bank celebrates the company's launch on the London Stock Exchange, with chief executive Andy Golding, centre

OneSavings Bank celebrates the company's launch on the London Stock Exchange, with chief executive Andy Golding, centre

More importantly, it signalled a new era for the former building society, brought back from the brink of financial ruin after it was rescued by private equity investors in 2010.

“I was exceptionally proud,” said Mr Golding in his office at the company’s Chatham headquarters, overlooking Rochester Castle across the River Medway.

“I’d never floated a business before. I have worked for one but never been responsible for taking it onto the main market.

“It’s great because it’s an historic occasion that not many people get the opportunity to do. I felt like a proud father. You feel like a business is your baby.”

Four years ago, such a thing was inconceivable to staff at the former Kent Reliance Building Society.

Haemorrhaging cash as a result of bad mortgage lending, its difficulties came at a time when the building society sector was dealing with a number of problem organisations.

OneSavings Bank and Kent Reliance chief executive Andy Golding at its Chatham headquarters

OneSavings Bank and Kent Reliance chief executive Andy Golding at its Chatham headquarters

A number of bigger groups like Nationwide, Coventry and Yorkshire were swallowing up other struggling lenders and had no capacity to take on more.

It left Kent Reliance needing to find a different structure to get capital in the organisation to ultimately avoid liquidation.

The company was saved by a £50m cash injection by New York-based private equity group JC Flowers.

“On the savings side its business model was OK but on the lending side it was flawed..." - OneSavings Bank boss Andy Golding

“On the savings side its business model was OK but on the lending side it was flawed,” said Andy, who lives on St Mary’s Island in Chatham during the week and is planning to move his family to the county from Northamptonshire.

“It had lots of tracker mortgages linked to the Bank of England base rate and lots of fixed mortgages that were swapped. When interest rates hit 0.5%, it found itself needing to pay its savers more than it was charging its borrowers.

“It was losing so much money it couldn’t have withstood any length of low interest rates.

“Even then none of us thought the low interest rate environment was going to last as long as it has. It definitely wouldn’t have made it.”

The business of the building society was eventually transferred into newly formed OneSavings Bank in February 2011.

Andy joined as chief executive in January 2012 from Saffron Building Society but only after getting assurances from JC Flowers that they would inject more money into the business. They eventually invested three more lots of £15m into the firm.

The announcement of their intention to float in May is the first step of JC Flowers’ exit plan. They still own just over 60% of the company, having sold 32.5% in the float.

OneSavings Bank and Kent Reliance chief executive Andy Golding at its Chatham headquarters

OneSavings Bank and Kent Reliance chief executive Andy Golding at its Chatham headquarters

It is expected to float another third at a later date, while keeping a third as a long-term investment.

The bank’s share price has remained stable since its launch at 170p a share, trading between 170p and 175p, having reached 180p at one point on opening day.

“They see the future potential in the business and its profitability,” said Andy, who has instigated a deliberate strategy around retail savings.

The company does not have new-customer offers and focuses on providing long-term value for money on all their products.

“It’s been a tough process,” he said. “It has been great fun but it has been very tough.”

Having entered the stock exchange at the lower end of its initial hopes, some analysts could have argued OneSavings Bank’s float was a flop.

The company had hoped for a valuation of up to £500m on its initial public offer (IPO) but instead came in at about £413m, having launched shares at 170p.

The board decided to exercise caution in the float, following the difficult experience of companies like Saga.

“Saga wanted to push its share price hard and has seen it trade a lot lower than its opening price. We had that experience on board..." - OneSavings Bank boss Andy Golding

The over-50s holiday and insurance firm also entered the market at the bottom end of its valuation at 185p but has since traded at about 172p.

“Saga priced itself as a business that the market didn’t necessarily want to buy,” said Andy, who grew up in Maidstone.

“It wanted to push its share price hard and has seen it trade a lot lower than its opening price. We had that experience on board.

“Three months ago the markets were in a different place. There hadn’t been many IPOs and everything looked relatively buoyant.

“Had we done it then we’d have been pricing at the upper end of our range, not the lower.”

With many retailers like FatFace and Blue Inc scrapping IPO plans, there is a sense that investors are overwhelmed with companies joining the London Stock Exchange.

Andy added: “A lot of the investors we spoke to definitely had IPO fatigue. They said ‘I’ve got half a dozen IPOs on my desk so can you convince me why I should buy into yours?’

“Luckily I was able to do that because we took a deliberate decision to listen to feedback from the investors and price at the lower end of the range."

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